Debunking 4 Myths of Homeownership

Photo byTierra MallorcaonUnsplash

Kansas City, MO. - I often hear people around Kansas City referring to homeownership as the American dream. Despite the fact that many have been priced out of the housing market in recent years.

While owning a home may be their definition of the American dream, it may not be your dream once you find out that many of the often-touted benefits of homeownership are in fact myths.

Wait, what?

Think about those who promote owning a home as the American dream:

1. Realtors
2. Mortgage brokers
3. Real estate investors
4. Home builders
5. Politicians

Now, ask yourself why they promote homeownership so heavily?

Realtors want to sell more houses.

Mortgage brokers want more home loan applicants.

Real estate investors want more homebuyers to purchase their properties.

Home builders want more demand for new housing construction.

Politicians want more homeowners paying real estate taxes to fund their coffers.

In short, the answer comes down to one simple thing: They all want to make more money.

That’s why you often here these common myths about homeownership.

1. Your home’s value will always go up

The 2007–2009 housing crisis should have taught everyone that, no, housing prices don’t always go up. In fact, sometimes they can decline by a lot — leaving homeowners reeling.

For example, during 2008 home prices in dozens of regions across the United States fell by more than 20%. And by 2009, the average price of a home was 28% lower than it was in 2005, when adjusted for inflation.

Those sudden, steep price drops put many mortgages underwater (where the value of a home was worth less than the home loan). That led to record numbers of foreclosures.

Many housing markets took several years to recover.

And don’t make the mistake of thinking there couldn’t be another collapse in housing prices just because of the last few years of price increases.

2. Your home’s value will double every decade

Another common myth about homeownership is that the value of your house will double approximately every 10 years. This statement is based on the average annualized returns over the last 3 decades across the entire country.

However, each regional (and even local) housing market is different.

For example, some homes may double in value as quickly as every 7 years, while other houses will fall well-short of seeing those kind of price increases. So, it depends on where you live and what happens in your local housing market.

3. Your home’s equity can be leveraged to increase your money

I have met a lot of savvy homeowners who brag about their home’s equity providing them with leverage to growth their net worth. But here is something to consider: What goes up can also go down.

So, while it’s true that when the equity in your house increases, you can leverage it to build greater wealth for yourself. However, if your home’s equity were to decline, then you can experience devastating financial losses.

For example, just a 10% decline in home equity is enough to bankrupt some highly-leveraged homeowners.

That’s why you shouldn’t view your house as a piggy bank.

4. Your home’s home’s mortgage interest and property taxes can be deducted on your income taxes

Finally, many homeownership advocates will tout all of the tax deductions available to homeowners. Except, many of them don’t know what they are talking about — or at the very least, they don’t really know what you can legally deduct anymore.

For example, the Tax Cuts and Jobs Act of 2017 reduced the amount of state and local taxes (SALT) that can be deducted on your federal taxes. Furthermore, the interest deduction for mortgages created after 2017 is no longer as generous as it used to be.

There are also more restrictions on deducting the interest from home equity loans.

So, before you buy a home make sure you carefully research the legal tax deductions you may be entitled to claim. Don’t just rely on what someone else tells you.

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